THE BREAKFAST BRIEFING

Has the long-awaited pullback arrived? Is it finally here? Is this it?

Those are the questions investors seem to ask every time the market faces a setback, no matter how small. So it comes as little surprise that those questions are circulating once again, as the market’s tranquility has been broken this week. The Dow Jones Industrial Average has registered back-to-back triple-digit point declines.

It’s worth noting that the market has proven its resiliency time and again over the past several months, as investors have repeatedly used dips as buying opportunities. But with that caveat, there are currently reasons for caution.

Violence in Iraq has sent oil prices skyrocketing. Washington has resurfaced as an issue to worry about after Eric Cantor announced he will step down as House majority leader following his startling primary loss. And numerous surveys show investors are too bullish, which contrarians argue could be the sign of a short-term top.

“There is room for additional weakness in the days ahead as short-term oversold conditions expand,” says Katie Stockton, chief technical strategist at BTIG, “but we do not view the pullback as potentially the start of something worse.”

After a slow start to the year, stocks had gained some steam to the upside in recent weeks amid signs of an improving U.S. economy and assurances that the world’s central banks would keep their easy-money policies in place. But negative political headlines over the past few days have given the markets some trouble.

Gina Martin Adams, senior analyst at Wells Fargo Private Bank, is also recommending a cautious approach. In a note to clients earlier this week, she expressed concern that investors had become too optimistic. Bullish sentiment among individual investors rose to 45% during the week ended Wednesday, the highest level of the year, according to a weekly online survey by the American Association of Individual Investors.

“Investors appear increasingly convinced that the only direction for stocks is higher,” Ms. Adams wrote on Wednesday, prior to the two-day selloff. The “extremely high levels of bullishness” have placed her on guard for about a 5% pullback.

Still, market participants would be wise not to overreact. The last time the Dow dropped by more than 100 points two days in a row–May 14-15—it went on to rally in 14 of the next 17 trading sessions. And the blue-chip average has only lost 1.3% over the past two days. It remains up 0.1% for the month and 1% the year. The S&P 500 is up 4.4% this year.

“Should a correction play out in future weeks, we suggest investors prepare to buy any dip below our end of year price target of 1850 for the S&P 500,” Ms. Adams said.

Morning MoneyBeat Daily Factoid: Friday the 13th is generally an unlucky day, but stock investors have actually done quite well by “Friday the June 13th.” Since 1928, the S&P 500 has risen in 10 of the 12 times Friday the 13th has landed in June, according to S&P’s data whiz Howard Silverblatt.

STOCKS TO WATCH

After Thursday’s closing bell, Intel said it is raising its second-quarter revenue outlook on improving PC demand. Intel now expects sales for the current quarter at $13.7 billion, plus or minus $300 million, compared with a previous forecast of $13 billion, plus or minus $500 million. “The change in outlook is driven mostly by strong demand for business PCs,” said Intel. Intel shares were up 4.9% in after-hours trading.

Finisar late Thursday reported its fourth-quarter earnings rose to $28.4 million, or 27 cents a share, from $3.9 million, or 4 cents a share, a year ago. On an adjusted basis, Finisar earned 36 cents a share, short of the 38 cents projected by analysts in a FactSet survey. Revenue grew to $306 million from $243.4 million. Finisar also forecast fiscal first-quarter revenue of $320 million to $335 million and adjusted per-share earnings of 30 cents to 34 cents. Finisar shares tumbled 20% in after-hours.

MUST READS (LINKS)

Iraq Scrambles to Defend Baghdad: “Iraq’s government girded to protect the capital from advancing insurgents, as Iranian security officials said their forces had joined the battle on Baghdad’s side and the U.S. weighed military assistance.”

Hedge Funds Get Stung by Slow Markets: “Some of the biggest investors on Wall Street are losing money with wrong-way bets in markets around the globe, a surprising black eye amid a rise in stock and bond prices.”

BOE’s Carney: Rates Could Rise Sooner Than Markets Expect: “Bank of England Gov. Mark Carney said Thursday that interest rates in the U.K. could rise sooner than investors expect, sending the clearest signal yet that Britain’s central bank is inching closer to calling time on five years of record-low borrowing costs.”

Kiev Says Tanks Entered Via Russia: “The development would represent a substantial upgrade of the weaponry in the hands of pro-Russia separatists in Ukraine’s restive eastern regions.”

More Loans Come With Few Strings Attached: “Lending to weaker companies on easy terms is becoming more common as investors’ appetite for higher-yielding debt grows stronger and the Fed keeps money flowing at ultralow rates.”